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PROPOSED LAW NO. 97 /X

Exhibition of Motives

Following the constitutional revision of 1997, the Finance Act of the Regions

Autonomas, approved by Law No. 13/98 of February 24, established, by the first

time, the general rules for the realization of financial autonomy enshrined in the

Constitution and the political-administrative statutes of the Autonomous Regions.

As a pioneering legal diploma, Law No. 13/98 of February 24 mandated its

own review by the end of 2001, which did not occur, without prejudice to that law having

been punctually modified by the Organic Laws No. 1/2002 of June 29, n.

2/2002, of August 28, and by the Law No. 60-A/2005 of December 30.

It thus fulfils more than eight years on its approval, to proceed to the review of the

Finance Law of Autonomous Regions, taking into account the experience taken during

its application and the developments in the meantime recorded in the financial discipline rules of the

public administrative sector, particularly those arising from the Treaty on the Union

European and the Economic and Monetary Union.

This proposed Bill of Finance of the Autonomous Regions aims to ensure,

notably, that fiscal consolidation efforts are shared by the

various levels of the Public Administration, the strengthening and clarification of autonomy and

tax liability of Autonomous Regions and the correction of disabilities and

inaccuracies detected over the duration of the Act No 13/98 of February 24.

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In that sense, one of the nuclear aspects of the present proposal consists in the review of the

rules for the determination of the amounts of the annual budget transfers of the

State in favour of the Autonomous Regions.

First, it indexes the annual amount of the monies to be entered in the Budget of the

State in favour of the Autonomous Regions at the rate of change in current expenditure of the

State, excluding the transfer of the State to Social Security and the contribution of the

State for the General Box of Retirements, being defined a maximum ceiling of

variation equal to the rate of change in GDP at current market prices, what constitutes

a reference base more consentful with the principle of national solidarity.

Second, the apportionment between the two Autonomous Regions of the global amount

of the annual transfers shall be governed by principles of equity and shall be carried out in the

total population, the young and elderly population, the periphery index of each Region and the

an index of fiscal effort.

In the case of the Cohesion Fund, the respective transfers are fixed as a

decreasing function of the ratio between GDP at market prices per capita of the Region

Autonomous and national, being that the Autonomous Region is eligible only to benefit from the

Fund if this ratio is lower than one. Additionally, a mechanism of

gradual slowdown in the amount of the Cohesion Fund, to be applied if the Region leaves

of being eligible soon in the year of entry into force of this law. This mechanism is intended for,

on the one hand, avoid a sudden drop in the amount that the Region had come to enjoy

and, on the other hand, not to ignore that the existence of free zones in the Regions is

likely to generate income not fully available to the Region. And, a lot

although that fact does not change, at the moment, in a sufficiently significant manner, the

relative positions among the average income levels earned by the residents of

each Region and the national average, it is expected that in the last year of that

mechanism to proceed to the assessment of the level of relative development of the Region

covered. Such an evaluation will take into account the possible impact of the existence of

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francas zones located in that region.

With respect to indebtedness, a sanctionatory framework is defined to be applied in

case of violation of its limits.

It is established, yet, that, without prejudice to the legally foreseen situations, the

Autonomous Regions loans can not benefit from personal assurance of the

State. It also determines the prohibition of the assumption of commitments from the

Autonomous Regions by the State.

In the name of transparency of financial relations between the State and the Regions

Autonomas, it abandons the way of calculating VAT own revenue on the basis of the

system of captions, replacing it with the rule of allocation to each Autonomous Region

of the VAT revenue collected by the operations in them carried out. In the determination of the

amount of the transfers of the State Budget in favour of the Autonomous Regions is

considered an appropriation that aims to compensate for the Autonomous Regions of the impact

stemming from this amendment on revenue.

In the area of the power of adaptation of the national tax system, broaden and clarify-

if the competences of the Autonomous Regions, by ascribe to them competence for creation

of any kind of tax behollable only in the respective Autonomous Region, since

that the same non-inciting on subject matter of national taxation.

In the regard to the own revenues of the Autonomous Regions, the adaptation of the

regional finance regime to the major changes in the structure of the

national tax system, maxime the abolition of the Tax on Sudisposals and Donations

and the entry into force of the new Selo Tax Code.

In this proposed law there was still the clarification and simplification of the wording

of various precepts previously set out in Law No. 13/98 of February 24, and

have introduced rules aimed at revitalizing the operation of the Council of

Monitoring of Financial Policies and operationalizing projects of interest

common.

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The self-governing bodies of the Autonomous Regions were heard.

Thus:

Under the terms of the paragraph d ) of Article 197 (1) of the Constitution, the Government presents to the

Assembly of the Republic the following proposal for a law:

Title I

Object, general principles and accountability

Chapter I

Object and general principles

Article 1.

Subject

This Law shall have the object of the means available to them by the Regions

Autonomous of the Azores and Madeira for the realization of financial autonomy

enshrined in the Constitution and the political-administrative statutes.

Article 2.

Scope

For the purposes of the preceding Article, this Act covers matters relating to

regional revenue, the own tax power of the Autonomous Regions, to the adaptation of the

national tax system, the financial relations between Autonomous Regions and the

local authorities seated in the Autonomous regions, as well as the regional heritage.

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Article 3.

Principles

The financial autonomy of the Autonomous Regions develops in respect of the

following principles:

a) Principle of legality;

b) Principle of the stability of financial relations;

c) Principle of budgetary stability;

d) Principle of national solidarity;

e) Principle of coordination;

f) Principle of transparency;

g) Principle of control.

Article 4.

Principle of legality

The financial autonomy of the Autonomous Regions exercises in the framework of the Constitution,

of the respective political-administrative statutes, of this Law and other legislation

complement.

Article 5.

Principle of stability of financial relations

Regional financial autonomy develops in respect of the principle of

stability of financial relations between the State and the Autonomous Regions, which it aims to

guarantee to the governing bodies of the Regions Autonomous the predictability of the means

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necessary for the pursuit of their assignments.

Article 6.

Principle of budgetary stability

Regional financial autonomy develops in the framework of the principle of stability

budget, which presupposes, in the medium term, a situation close to the balance

budget and, in each economic year, the fixation in the State Budget of the limits

maximum regional net borrowing to which the Autonomous Regions are subject.

Article 7.

Principle of national solidarity

1-The principle of national solidarity is reciprocated and covers the whole national and every

one of its parcels, and shall ensure an appropriate level of public services and

of private activities, without disegalitarian sacrifices.

2-The principle of national solidarity is compatible with financial autonomy and

with the obligation of the Autonomous Regions to contribute to the balanced

development of the Country and for the fulfilment of policy objectives

economic to which the Portuguese State is bound by force of treaties or

international agreements, particularly those arising from common policies or

coordinates of growth, employment and stability and common monetary policy

of the European Union.

3-The principle of national solidarity aims to promote the elimination of inequalities

resulting from the situation of insularity and of the outermost and the realization of the

Economic convergence of Autonomous Regions with the remaining national territory

and with the European Union.

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4-The State and the Autonomous Regions contribute reciprocally to the realization of the

its financial objectives, in the framework of the principle of the stability of the respective

budgets.

5-For the purpose of compliance with the principle of social solidarity, Art. 37 para.

determines the criteria of transfers from the State Budget to the Regions

Autonomous.

6-A solidarity also links the State towards the Autonomous Regions in the

situations referred to in Articles 42 and 43.

Article 8.

Principle of coordination

The Autonomous Regions exercise their financial autonomy by coordinating their

financial policies with those of the State so as to ensure:

a) The fulfillment of regional and national financial objectives, and

view the promotion of the balanced development of the national whole;

b) The achievement of the budgetary objectives to which Portugal is obliged,

in particular within the framework of the European Union;

c) The realization of the principle of budgetary stability, so as to avoid

situations of inequality.

Article 9.

Principle of transparency

1-The State and the Autonomous Regions provide each other with all information in

economic and financial matters necessary to the full cabal pursuit of their respective

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financial policies.

2-A information referred to in the preceding paragraph shall be complete, clear and objective

and be provided in a timely way.

Article 10.

Principle of control

The financial autonomy of the Autonomous Regions is subject to the controls

administrative, jurisdictional and political, in the terms of the Constitution and the statute

politico-administrative of each of the Autonomous Regions.

Article 11.

Council for Monitoring Financial Policies

1-To ensure coordination between the finances of the Autonomous Regions and those of the

State, works, together with the Ministry of Finance and Public Administration, the

Monitoring Council for Financial Policies, with the following

competencies:

a) Accompany the application of this Law;

b) Analysing regional budget policies and their coordination with the

purposes of national financial policy, without prejudice to autonomy

regional financial;

c) Appreciate, in the financial plan, the participation of the Autonomous Regions in the

community policies, particularly those relating to the economic union and

monetary;

d) Ensuring compliance with the rights of participation of the Autonomous Regions

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in the financial area provided for in the Constitution and in the political statutes-

administrative;

e) Analysing financing needs and borrowing policy

regional and its coordination with the objectives of national financial policy,

without prejudice to regional financial autonomy;

f) Follow up on the evolution of community support mechanisms;

g) Issue the opinions stipulated in Article 27 (4), in Article 30 (2), and

in Article 40 (3);

h) Issuing opinions at the request of the Government of the Republic or governments

regional.

2-The Council meets ordinarily once a year, prior to approval by the

Council of Ministers of the proposal for the State Budget Act and,

extraordinarily, by duly substantiated request of the Minister of

Finance or from one of the regional governments.

3-A composition and the operation of the Council, which integrates representatives

appointed by regional governments, are defined by joint dispatch of the

Prime Minister and the Minister of Finance, after hearing the Governments

Regional of the Azores and Madeira.

Chapter II

Provision of Accounts

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Article 12.

Excessive deficit procedure

1-Within the scope of the excessive deficit procedure, until the end of the months of

February and August, regional statistical offices present an estimate

of the non-financial accounts and public debt of regional public administrations

for previous years and current in accordance with the ESA 95 and the methodology

Manual of the Défice and Debt approved by the Eurostat .

2-National statistical authorities must validate the accounts presented by the

regional statistical offices by the end of the month following that of your presentation.

3-In the event that the accounts are not validated or reservations are raised at

estimates submitted by the regional authorities, the statistical authorities

national must submit a detailed report of the corrections made and

respective impacts on the balance of the accounts and the public debt of administrations

regional public.

Article 13.

Estimates of budget implementation

1-Each regional government presents quarterly, to the Ministry of Finance and the

Public Administration, an estimate of budget implementation and public debt

of the regional government, including the Autonomous services and Funds, by the end of the month

next of the quarter to which they relate, in format to be defined by the Ministry of

Finance and the Public Administration.

2-The non-sending of the quarterly information referred to in the preceding paragraph implies the retention

of 10% of the twelfth of the State budget transfers.

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3-A The percentage predicted in the previous figure increases to 20% from 1.

quarter of default.

4-Retained Monies are transferred to Autonomous Regions as soon as they are

received the elements that have been at the origin of these retentions.

TITCHAPTER II

Regional revenue

SECTION I

Tax revenue

SUBSECTION I

General provisions

Article 14.

Concepts

For the purpose of realizing the distribution of tax revenue between the State and the

Autonomous Regions, is deemed to be:

a) National territory is the Portuguese territory as defined in Article 5 of the

Constitution;

b) Circumscription is the territory of the continent or of an autonomous region,

depending on the case;

c) Autonomous Region is the territory corresponding to the archipelago of the Azores and

to the Madeira archipelago.

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Article 15.

Obligations of the State

1-In harmony with the provisions of the Constitution and the respective political statutes-

administrative, the Autonomous Regions are entitled to delivery by the Government of the

Republic of tax revenue relating to taxes that should belong to them, in the

terms of the following articles, as well as other recipes assigned to them

by law.

2-A delivery by the Government of the Republic to the Autonomous Regions of tax revenue

that they compete to process them up to the 15 th day of the month subsequent to that of their

collection.

3-In the event that it is not possible to rigorously ascertain the part of the tax revenue of any

taxes for Autonomous Regions, the amount provisionally transferred

is equivalent to net income in the corresponding month of the previous year multiplied by the

revenue growth rate of the respective tax expected in the Budget of the

State for the current year.

4-For the purpose of calculating tax revenue due to Autonomous Regions, these do not

are entitled to the allocation of tax revenue that are not charged by virtue of

benefits applicable in your territory.

5-Without prejudice to the provisions of the following Articles, they shall be adopted by way of legislation or

regulatory, as well as through protocols to be concluded between the Government of the

Republic and regional governments, the measures necessary for the realization of the

provisions of this Article.

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SUBSECTION II

Taxes

Article 16.

Tax on the income of natural persons

It constitutes revenue from each Autonomous Region the income tax of the people

singular:

a) Due by natural persons considered fiscally resident in each

Region, regardless of the place in which they operate the respective activity;

b) Retained, in the final title, on income paid or made available to

natural persons deemed to be fiscally not resident in any

circumscription of Portuguese territory, by natural or legal persons with

residence, seat or actual direction in each Region or by establishment

stable in them situated at which such income should be imputed;

c) Retained, in definitive title, on the prizes of lotteries, totolithic and bets

sports mutuals, claimed and or paid in each Autonomous Region,

regardless of the place of residence, as yet known, of the

beneficiary or of the place of acquisition of the titles of the game or of the realization of the

betting.

Article 17.

Tax on the income of legal persons

1-Constituted revenue of each Region Autonomous the income tax of the

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legal persons:

a) Due by legal persons or equistops who have headquarters, direction

effective or permanent establishment in a single Region;

b) Due by legal persons or equistops who have a seat or direction

effective in Portuguese territory and possesses branches, delegations, agencies,

offices, facilities or any forms of permanent representation without

legal personality of its own in more than one circumscription, in the terms

referred to in paragraph 2 of this Article;

c) Retained, in the final title, by the income generated in each circumscription,

concerning legal persons or equiparates who are not registered,

effective steering or stable establishment on national territory.

2-Regarding the tax referred to in paragraph b) from the previous number, the revenues of

each circumscription is determined by the proportion between the annual volume of

business of the exercise corresponding to the facilities located in each Region

Autonomous and the total annual turnover of the exercise.

3-For the purposes of this Article, the annual volume of business is understood to be the value of the

transmissions of goods and services benefits, excluding tax on the

value added.

Article 18.

Ancillary obligations of income taxes

The entities that carry out the withholding at the source to residents or non-residents, with

or without stable establishment, must carry out the respective discrimination by the

circumscription, in accordance with the imputation rules defined in the terms of the articles

previous.

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Article 19.

Value added tax

1-Constitutes revenue from each circumscription tax on value added

charged for the operations therein carried out, in accordance with the criteria set out in the

n. paragraphs 2 and 3 of Article 1 of the Decree-Law No 347/85, August 23.

2-The Minister of Finance, listened to the regional governments, regulates by poring the

mode of allocation to the Autonomous Regions of the respective revenue.

Article 20.

Special consumption taxes

They constitute revenue from each circumscription the excise taxes collected

on the taxable products that are introduced in the consumption.

Article 21.

Stamp duty

1-Constitutes revenue from each Region Autonomous the stamp duty, due by subject

liabilities referred to in Article 2 (1) of the Selo Tax Code that:

a) They have headquarters, effective direction, stable establishment or domicile

tax in the Autonomous Regions;

b) They have registered office or effective direction on national territory and possess

branches, delegations, agencies, offices, facilities or any forms of

permanent representation, with no legal personality of its own in the Regions

Autonomous.

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2-In the situations referred to in the preceding paragraph, the revenue of each Autonomous Region

are determined, with the necessary adaptations, in the terms of the rules of the

territoriality provided for in Article 4 (1) and 2 of the Code of the Selo Tax Act,

regarding the tax facts occurring in these Regions, and the subjects

liabilities proceed to discrimination in the respective guides of the tax due.

3-In the free transmissions, it constitutes revenue of the Autonomous Regions the value of the

stamp duty:

a) That, in the successions by death, it would be due by each beneficiary with

tax domicile in the Autonomous Regions, when the taxable person is a

inheritance, represented by the head of couple under the terms of the ( a) of paragraph 2 of the

article 2 of the Selo Tax Code;

b) Due to the remaining free transmissions when the tenant, tenant, or

usucapient has tax domicile in the Autonomous Regions.

Article 22.

Extraordinary taxes

1-Extraordinary Taxes settled as additional or on the subject matter

collectable or the collection of other taxes constitute revenue from the circumscription to which

the main taxes on which they have focused have been affected.

2-Autonomous extraordinary taxes are proportionally allocated to each

circumscription, in accordance with the location of the goods, of the conclusion of the contract or

of the situation of the goods guarantors of any principal or ancillary obligation on

that they focus.

3-Extraordinary Taxes can be in accordance with the diploma that creates them, be

allocated exclusively to one or more constituencies, if the exceptional situation

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may legitimize them occur or check themselves only in that or in these constituencies.

SECTION II

Other recipes

Article 23.

Interest

They constitute revenue of each circumscription the value charged for interest of late payment and interest

compensation, net of the interest indemnibles on the taxes that constitute

own recipes.

Article 24.

Fines and fines

1-The fines and fines constitute revenue from the constituency in which if it has been verified to

action or omission that connces the offence.

2-When the offence is practised in successive or repeated acts, or by a single act

likely to extend in time, fines or fines are affected to the

circumscription in whose area if the last act has been practiced or has ceased to

consumation.

Article 25.

Regional public fees and prices

Without prejudice to the provisions of special legislation, it constitutes revenue from each Region

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Autonomous, the product of the fees, emoluments and prices due by the provision of

regional services, by the acts of removal of legal limits on the activities of the

particulars of the competence of regional bodies and the use of goods from the field

regional public.

SECTION III

Regional public debt

Article 26.

General principles

Recourse to regional public indebtedness is guided by principles of rigour and

efficiency, aims to ensure the provision of the funding required by each

budget exercise and pursue the following objectives:

a) Minimization of direct and indirect costs in a long-term perspective;

b) Guarantee of a balanced distribution of costs by the various budgets

annual;

c) Prevention of excessive temporal concentration of depreciation;

d) Not exposure to excessive risks.

Article 27.

Public loans

1-Autonomous Regions may, in the terms of their respective political statutes-

administrative and present law, contracting founded and float public debt.

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2-A contraction in currency loans without legal tender in Portugal is made in the

terms of the respective political-administrative statutes, depends on prior

authorization of the Assembly of the Republic and takes into consideration the need for

avoid distortions in the external public debt and do not cause negative reflections in the

rating of the Republic.

3-Loans to be incurred by the Autonomous Regions denominated in currency without

legal tender in Portugal may not exceed 10% of the direct debt of each Region

Autonomous.

4-Since duly justified and upon prior opinion of the Council of

Monitoring of Financial Policies, the percentage to which the number is referred

previous may be outdated, upon permission of the Assembly of the Republic,

on a proposal from the Government.

Article 28.

Debt founded

The contraction of debt founded lacks the authorization of the respective assemblies

regional legislative bodies, pursuant to the political-administrative statutes of the Regions

Autonomas, and is intended solely to finance investments or to replace and

amortize loans previously contracted by obeying the fixed limits of

harmony with the provisions of this Law.

Article 29.

Floating debt

To cope with treasury needs, Autonomous Regions can issue

fluctuating debt whose accumulated amount of living emissions at each time no

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is expected to surpass 35% of the current revenue collected in the previous financial year.

Article 30.

Limits to borrowing

1-In view of ensuring the effective coordination between the finances of the State and of the

Autonomous Regions and the fulfilment of the principle of budgetary stability, are

defined annually in the State Budget Act maximum limits of

regional indebtedness, compatible with the concepts used in accounting

national, which include the avales executed.

2-The maximum regional borrowing limits are set by taking into consideration

the proposals put forward by the regional governments to the Government of the Republic and the

opinion of the Monitoring Council of Financial Policies, and obey the

targets set by the Government of the Republic as to the overall balance of the sector

administrative public, with a view to ensuring compliance with the principle of

budgetary stability.

3-In the setting of the limits mentioned in the preceding paragraphs it is met that, in

result of additional indebtedness or increase in credit to the Region, the service

of total debt, including annual amortizations and interest, do not exceed, in case

some, 25% of current revenue from the previous year, with the exception of transfers

and state comholdings for each Region.

4-For the purposes of the preceding paragraph, the debt service is not considered to be the amount of the

extraordinary depreciation.

5-In the case of loans whose amortization is focused on a single year, for purposes

of the preceding paragraph, proceeds to the annualisation of the respective value.

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Article 31.

Sanction for violation of limits on indebtedness

1-A The violation of borrowing limits by an Autonomous Region originates a

reduction in transfers from the State that is due to it in the subsequent year, of value

equal to excess indebtedness in the face of the ceiling determined in the terms

of the previous article.

2-A reduction provided for in the previous number procures in proportion to the

benefits to be transferred quarterly.

Article 32.

Issuance of public debt pending approval or publication

of the State Budget

The issuance of regional public debt in the pendency of approval or publication of the

State Budget Law shall be subject to the provisions of Article 8 of Law No 7/98 of 3

of February.

Article 33.

Support of the Institute of Public Credit Management, I. P.

The Autonomous Regions can draw on the support of the Institute of Credit Management

Public, I. P., either for the organization of regional public debt issues, or

for the monitoring of their management, with a view to minimising costs and risk and the

coordinate regional public debt operations with the direct public debt of the

State.

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Article 34.

Tax treatment of regional public debt

Regional public debt enjoys the same tax treatment as the public debt of the

State.

Article 35.

Guarantee of the State

Without prejudice to the legally foreseen situations, the loans to be issued by the Regions

Autonomas cannot benefit from personal assurance of the State.

Article 36.

Prohibition of the assumption of commitments of Autonomous Regions by the State

Without prejudice to the legally foreseen situations, the State shall not assume

liability for the obligations of the Autonomous Regions, nor assume the

commitments that are due to these obligations.

SECTION IV

Transfers from the State

Article 37.

Budget transfers

1-In fulfillment of the principle of solidarity enshrined in the Constitution, in the

political-administrative statutes and in this law, the State Budget Act of

each year includes monies to be transferred to each of the Autonomous Regions.

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2-The annual amount of monies to be entered in the State Budget for the year t is

equal to the monies entered in the State Budget for the updated t-1 year of

agreement with the update rate set out in the terms of the following numbers.

3-A refresh rate is equal to the rate of change, in the year t-2, of the current expenditure of the

State, excluding the transfer of the State to Social Security and the

state contribution to the General Box of Retirements, according to the Account

General of the State.

4-In the case that the rate of change defined in the preceding paragraph exceeds the estimate of the

National Statistical Institute of the rate of change, in the year t-2, of the GDP at prices of

current market, the update rate referred to in paragraph 2 will be the estimate of the

National Statistical Institute of the rate of change, in the year t-2, of the GDP at prices of

current market.

5-In the year of entry into force of this Law, the amount of monies to be enrolled in the

State budget for the year t is equal to the amount entered in the year t-1

multiplied by factor 1.5.

6-A apportionment of this amount by the Autonomous Regions, which takes into account the

respective structural characteristics and includes a fixed factor pertaining to the impact

on the revenue from the value added tax arising from the application of the n.

1 of Article 19, it is made in accordance with the following formula:

Despite the Despite

From

Despite the Despite

Despite the Despite the Despite the Despite The

The

The

The

The

The

The

The

The i

EF

EF

IU

IU

P

P

P

P

P

P TT

tRA

tR

RA

R

tRA

tR

tRA

tR

tRA

tR

tRA 335,005,015,0 to 14

14 to 05.0

65

65 to 05,00,365

4,

4,

2,

2,

2,

2,

2,

2,

, tR,

Being:

i = 0.27 and i = 0.73 corresponding weighers, respectively, the Autonomous Region

of Madeira and the Autonomous Region of the Azores.

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tR, T -Budget transfer to the Autonomous Region in the year t.

tRA, T -Budget transfer to the Autonomous Regions in the year t, calculated from

agreement with the provisions of paragraph 2 of this article.

Despite the

PR , t 2-Population of the Autonomous Region in the year t-2 according to the latest data

released by the INE at the date of the calculation;

Despite the

PRA , t 2-Soma of the population of the Autonomous Regions in the year t-2;

Despite the

P 65 R , t 2-Population of the Autonomous Region in the year t-2 with 65 or more years of age

second the last data released by the INE at the date of the calculation;

Despite the

P 65 RA , t 2-Soma of the population of the Autonomous Region with 65 or more years of age

in the year t-2;

Despite the

P 14 R , t 2-Population of the Autonomous Region in the year t-2 with 14 or less years of age,

second the last data released by the INE at the date of the calculation.

Despite the

P 14 RA , t 2-Soma of the population of Autonomous Regions in the year t-2 with 14 or less

years of age;

RIU = RA

R

RA

R

ilhasn

ilhasn

DL

DL

º

No. 3,07,0 Probability thereof

RAIU -Sum of the ultra periphery indices.

RDL -Minor distance between the Autonomous Region and the Portuguese continent.

RADL -Sum of the smallest distances between each of the Autonomous Regions and the

Portuguese continent.

Rilhasn No.-Number of islands with resident population in the Autonomous Region.

RAilhasn No.-Total number of islands with resident population in the Regions

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Autonomous.

Despite the

EFR , t 4 = Race between tax revenue of the Autonomous Region and Gross Domestic Product a

market prices, current prices, in the year t-4.

Despite the

EFRA , t 4 = Soma of the fiscal effort indicators.

7-State Budget transfers are processed in quarterly installments,

to be carried out in the first five days of each quarter.

Article 38.

Cohesion fund for the outermost regions

1-The Cohesion Fund is intended to support exclusively programmes and projects of

constant investments of the annual investment plans of the Regions

Autonomas, taking into account the precept in the ( g) of Article 9 and in the j) from the

article 227 of the Constitution, and aims to ensure economic convergence with the

remaining national territory.

2-The Cohesion Fund has in each year of State Budget appropriations, the

transfer to regional budgets, to finance the programmes and projects of

investment, previously identified, which fulfills the requirements of the number

previous and is equal to a percentage of budget transfers for each

Autonomous Region defined in the terms of the previous article.

3-A The percentage to which the preceding paragraph is concerned is:

20% when 90.0 to 4

4 The total

The

t

t

PIBPCN

PIBPCR

12.5% when

Despite the

0.90, PIBPCRt 4

PIBPCNt 4 0.95

26

5% when

Despite the

0.95, PIBPCRt 4

PIBPCNt 4 1

0% when

Despite the

PIBPCRt 4

PIBPCNt 4 1

Being:

Despite the

PIBPCRt 4-Gross domestic product at current market prices per capita in the Region

Autonomous in the year t-4.

Despite the

PIBPCNt 4-Gross domestic product at current market prices per capita in

Portugal in the year t-4.

Article 39.

National comparticipation in incentive systems

They are transferred to the Autonomous Regions the importances corresponding to the

payment of the bonuses due in the respective territories and resulting from the

application of incentives systems created at the national level.

Article 40.

Projects of common interest

1-By projects of common interest understand those who are promoted by

reasons of interest or national strategy and still those likely to produce a

positive economic effect for the whole of the national economy, awounded,

specifically, by its consequences in terms of balance of payments or

of creating jobs, and, well, those who have by effect a

decreasing costs of insularity or better communication between the

different points of the national territory.

2-A The classification of a project as being of common interest depends on decision

favorable from the Government of the Republic and the regional government.

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3-The concrete conditions of financing by the State of the projects envisaged in the

previous number are set by Decree-Law, ears the Regional Government to which

says respect and the Council for Monitoring Financial Policies.

Article 41.

Special cases

They constitute extraordinary transfers of the State Budget as to which they result from the

set out in Articles 42 and 43, as well as possible transfers to the

concretization of the territorial continuity.

Article 42.

Financial protocols

In exceptional cases, the State and Autonomous Regions may conclude protocols

financial, with reciprocal obligations not provided for in this Law, but in accordance

with its general principles.

Article 43.

Extraordinary support

1-A national solidarity links the State to support the Autonomous Regions in

unforeseen situations resulting from natural disasters and for which these do not

have financial means, aiming at, specifically, reconstruction actions and

recovery of infrastructure and economic and social activities, as well as the

support for their respective affected populations.

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2-A The national solidarity still translates into the obligation of the state to repose the situation

previous to the practice of environmental damage, caused in the Autonomous Regions,

arising from the exercise of activities by him or by other States,

notably by virtue of international agreements or treaties, or to be made available

the financial means necessary for the repair of such damage.

Article 44.

Transfer of assignments and skills to local authorities

Within the scope of the transfer of assignments and competences to local authorities by

part of the State, it is incumbent upon the Autonomous Regions to secure the financial resources and the

heritage suitable for the performance of the transferred functions whenever they are

of the initial competence of regional governments, in the terms to be provided for in decree

regional legislative assembly of the respective legislative assembly.

Title III

Own tax power and adaptation of the national tax system

SECTION I

General framework

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Article 45.

General principles

The tax skills of regional bodies observe the constitutional limits and

statutaries and still the following principles:

a) The principle of coherence between the national tax system and tax systems

regional;

b) The principle of legality, in the terms of the Constitution;

c) The principle of equality between Autonomous Regions;

d) The principle of national solidarity, in accordance with Article 7 of this Law;

e) The principle of flexibility, in the sense that regional tax systems

must adapt to regional specificities, whether they may raise taxes

beams only in the Autonomous Regions want to adapt the taxes of

national scope to regional specificities;

f) The principle of sufficiency, in the sense that tax collectibles

regional, in principle, they must ensure the coverage of public expenditure

regional;

g) The principle of functional efficiency of regional tax systems, in the sense

that the structuring of regional tax systems should encourage the

investment in Autonomous Regions and ensure development

respective economic and social.

Article 46.

Tax competencies

1-The regional bodies have tax competencies of a normative nature and

30

administrative, to exercise in the terms of the following numbers.

2-A Regional legislative competence, in tax matters, is exercised by the assembly

regional legislative procedure, upon legislative decree, and comprises the following

powers:

a) The power to create and regulate taxes, beholdged only in the Autonomous Regions

respective, defining the respective incidence, the rate, the settlement, the

collection, tax benefits and taxpayer guarantees, pursuant to the

present law;

b) The power to adapt national scope taxes to specificities

regional, in the area of incidence, rate, tax benefits and guarantees of the

taxpayers, within the limits set in the law and in the terms of the articles

following.

3-The normative and administrative competences to which the figures relate

previous ones are exercised in the terms of sections II and III of this Title III.

SECTION II

Legislative competences and tax regulations

Article 47.

Current taxes in the Autonomous Regions only

1-Regional legislative assemblies, upon regional legislative decree, may

create tax prevailing only in the respective Autonomous Region, provided that the

same to observe the principles enshrined in this Law, do not focus on

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subject matter of the incidence provided for any of the scope taxes

national, yet exempt or non-subject matter, or, in it not constying, may be

likely to integrate that incidence, and from its application do not result in barriers to

exchange of goods and services between the different points of the national territory.

2-The taxes referred to in the preceding paragraph shall lapse in the event that they are subsequently

created other similar ones from a national level.

3-A the jurisdiction referred to in paragraph 1 comprises, among others, the power to create and

regular enhancement contributions only in the Autonomous Regions, to

to tax increases in value of real estate arising from works and investments

regional public and, well thus, create and regulate other special contributions

to compensate for the largest regional expenditure arising from activities

toilets or abusers of the public goods or the regional environment.

Article 48.

Additional to taxes

Regional legislative assemblies have competence to launch additional ones, up to the

limit of 10% on the collection of taxes in force in the Autonomous Regions.

Article 49.

Adaptation of the national tax system to regional specificities

1-Without prejudice to the provisions of national tax legislation to invigorate only in the

Autonomous Regions, the adaptation of the national tax system to the specificities

regional observes the provisions of this Law and their supplementary legislation.

2-Regional legislative assemblies may grant deductions to the relative collection

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to commercial, industrial and agricultural profits reinvested by the taxable persons.

3-The legal regime of the International Business Centre for Wood and the Zone

Franca of Santa Maria regulates by the provisions of the Status of Tax Benefits and

supplementary legislation.

4-Regional legislative assemblies may still, under the law, diminish the

national rates of income taxes (IRS and IRC) and the tax on the

value added, up to the limit of 30%, and excise duty, of

agreement with the legislation in force.

5-Regional legislative assemblies may authorize regional governments to

granting temporary and conditioned tax benefits, relating to taxes of

national and regional scope, in contractual arrangements, applicable to projects of

significant investments, pursuant to Article 39 of the Status of Benefits

Tax and supplementary legislation in force, with the necessary adaptations.

Article 50.

Regulatory competences

The organs of the Autonomous Regions have tax regulatory competence concerning the

material subject to regional legislative competence.

SECTION III

Regional administrative skills

Article 51.

Regional administrative skills

1-Regional administrative powers, in tax matters, to be exercised by the

33

governments and respective regional administrations, comprise:

a) The fiscal capacity of Autonomous Regions to be subject to the

taxes in them levied, either regionally or nationally, in the

terms of paragraph 2;

b) The right to the delivery, by the State, of the tax revenue that should belong to them,

of harmony with the provisions of Articles 14 and following;

c) The power to fix the quantitative of the fees, emoluments and prices due by the

provision of regional services, albeit concessionaies, by the outorga

regional of licences, alvarás and other removals of the legal limits to

regional activities of private individuals and the use of the subject goods

regional public.

2-A The ability of Autonomous Regions to be subject to tax assets in them

charged comprises:

a) The power of regional governments to create the competent tax services for

the launch, settlement and collection of the regional scope taxes;

b) The power to regulate the subjects referred to in a previous paragraph without

injury to the guarantees of the taxpayers, national scope;

c) The power of Autonomous Regions to use the state's tax offices

headquartered in the Autonomous Regions, upon payment of a

compensation, agreed between the State and the Autonomous Regions, concerning the

service by that rendered, in its legal representation.

3-In the event that the State does not collect the compensation referred to in paragraph (c) of the

previous number, this must be accounted for as state transfer to the

Autonomous Regions.

4-National taxes that constitute regional revenue and taxes and fees

34

regional should be as such identified to the taxpayers in the printed and

tax forms, where possible, even if they are charged by the

tax administration of the state.

Article 52.

Competencies for the granting of tax benefits and incentives

1-In relation to tax benefits and incentives, whatever their nature and

purpose, of the specific and exclusive interest of a single Autonomous Region, the

competencies assigned in the general law to the Minister of Finance are exercised, with

respect for the general laws and principles in force and in the framework of the principle of

equality, by the member of the regional government responsible for the area of finance.

2-The benefits or tax incentives of interest or national scope or interest

specific to more than one circumscription are the competence of the Minister of

Finance, ears the respective regional governments.

Article 53.

Conflicts over the place of collection of taxes

The conflicts concerning the competence to decide on the place of collection of the

national scope taxes that are of interest to Autonomous Regions are solved by

agreement between the competent national and regional tax authorities and, in their absence, by

decision of the Supreme Administrative Court.

35

Title IV

From financial relations between Autonomous Regions and local authorities

Article 54.

Finance of local authorities

1-The finances of local authorities located in the Autonomous Regions and those of the Regions

Autonomas are independent.

2-The provisions of this Law shall be without prejudice to the financial regime of local authorities.

Article 55.

Financial support for authorities

Any form of regional financial support to local authorities in addition to the already

provided for in the Act shall be aimed at the enhancement of the investment capacity of the

authorities.

Title V

Of regional heritage

Article 56.

Remission

The Autonomous Regions have their own heritage and heritage autonomy, in the

terms of the Constitution, the political-administrative statutes and applicable law.

36

Title VI

Final and Transitional Provisions

Article 57.

Framework law

This Law, in tax matters, constitutes the framework law to which the Constitution and

the political-administrative statutes of the Autonomous Regions.

Article 58.

Safeguard clauses

1-The provisions of this Law:

a) Does not waiver the fulfilment of obligations previously assumed by the

State in relation to the Autonomous Regions and by these in relation to the State;

b) It shall be without prejudice to the obligations assumed or to be assumed in the context of treaties and

international agreements concluded by the Portuguese State;

c) It shall be without prejudice to the constitutional and statutory prerogatives of the Regions

Autonomas, specifically those concerning the rights of participation in the

treaty negotiations or international agreements.

2-In the case of, in the year of the entry into force of this Law, result to some of the

Autonomous Regions the loss of the Cohesion Fund, by the effects of the application of the

provisions of Article 38 (3), the same is concretised in a gradual manner, according to

with the following conditions:

a) In the year of the entry into force of this Law being the calculation of the percentage

37

corresponding to 0% is considered that this is equivalent to 17.5%;

b) In the three years following the said in the preceding paragraph, the calculation of the

percentage corresponding to 0%, it is considered that this is equivalent to

13.125%, 8.75% and at 4.375%, successively;

c) In the last year of the period referred to in the preceding paragraph, the assessment is carried out

of the level of relative development of the Region covered, having in

consideration of the possible impact arising from the existence of free zones.

Article 59.

Tax on Sudisposals and Donations

Notwithstanding the repeal of Law No. 13/98 of February 24, the Act continues to apply

provisions of Article 15 of the same law, regarding tax on successions and

donations due by any free transmission whose tax fact has occurred

up to the revocation of the Municipal Tax Code of Sisa and the Tax on the

Successions and Donations, and whose settlement process of the tax is pending to the

date of entry into force of this Law.

Article 60.

Supplementary standards

The Government of the Republic shall adopt the acts necessary for the implementation of the provisions of paragraph 3 of the

article 9, in Article 15 (5) and in Article 19 (2) within 90 days after the

entry into force of this Law.

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Article 61.

Transfer of the attributions and competences to the Autonomous Regions

1-The attributions and skills required for the exercise of the tax power

conferred on the Autonomous Regions, in cases where they consider that the

decentralization allows to better match the interests of the respective

populations and whether to carry out the regionalization of state services and correspondents

functions, are defined by decree-law.

2-Until the approval of the decree-law referred to in the preceding paragraph and until they find themselves

created and installed all the means necessary for the exercise of the tax power

conferred on the Autonomous Regions, the Directorate General of Taxes (DGCI), through

of its departments and services, and the State's services continue to secure the

realization of the procedures in administrative matters necessary for the exercise of the

mentioned power, including those relating to the settlement and collection of taxes that

constitute own revenue of the Autonomous Regions.

3-Until the entry into force of the decree-law referred to in the preceding paragraph, they shall remain all

the legal references made in the national tax legislation to the Minister of Finance

and to the Directors-General of the Tax Administration, in respect of the

own revenue of Autonomous Regions.

Article 62.

Adoption of the Official Public Accounting Plan

The Autonomous Regions shall adopt, in the maximum period of two years after the date of

entry into force of this Law, the Official Public Accounting Plan and the respective

Plans of Sectoral Accounts.

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Article 63.

Abrogation standard

It is repealed the Act No 13/98 of February 24 and their amendments.

Article 64.

Review

This Law is revised in the year 2014.

Article 65.

Entry into force

This Law shall come into force on January 1, 2007.

Seen and approved in Council of Ministers of October 4, 2006

The Prime Minister

The Minister of the Presidency

The Minister of Parliamentary Affairs